Winning Amid Consolidation and Innovation
Key Considerations for High Growth Brands (and those that want to be) PART TWO of TWO WRITTEN BY SARAH NAGEL SISISKY
All data and statistical information have been sourced from Bar Convent Brooklyn 2018 Routes to the U.S. Beverage Alcohol Market for Entrepreneurial Brands presentation.
art One of this two-part series explored the current U.S. spirits landscape from a high level vantage point, including consolidation among large suppliers and distributors and the democratization of marketing that creates opportunities for emerging brands. The focus of Part Two will explore trends among distributors and key considerations for navigating these trends to showcase how entrepreneurial brands can increase the likelihood for success. As noted in Part One, data from 2016 indicates that the top 10 spirits suppliers account for 72 percent of total market share, driven by the largest supplier, Diageo, accounting for 24 percent. Similarly, there has been significant consolidation in the distributor tier. Between 1990 and 2017, market share of the top 10 distributors has increased from 24 percent to 74 percent.
Consolidation of Distributors How did this happen in a relatively short period of time? As suppliers concentrated, they increased their power over distributors through their control of marquee brands. This wave of consolidation gave rise to the mega-suppliers such as Diageo, Beam, Brown-Forman, Pernod Ricard, Constellation, and Bacardi. The increased power of these suppliers manifested itself in a variety of ways that were advantageous to suppliers and reduced profitability for distributors — for instance, the routine use of requests for proposals to assess competing offers from distributors, multi-state alignment, distributor gross margin compression, and demands for increased attention and service levels. As a result, distributors began to consolidate to counterbalance the increase in large supplier influence and to strive for cost reduction through further economies of scale. Fast forward to 2017 and Southern Glazer’s Wine & Spirits (SGWS) is the market leader with revenues exceeding $17.5 billion and 31.8 percent market share. On a standalone basis, the next largest distributor is Republic National (RNDC) with revenues of $7.5 billion and 13.6 percent market share. However, on an as-if-fully merged basis, the combination of RNDC and Breakthru Beverage Group (Breakthru) would account for approximately $13
As suppliers concentrated, they increased their power over distributors through their control of marquis brands. billion in revenue and 23.6 percent market share. In the event Young’s Market is subsequently merged into the RNDC Breakthru operation, the transaction would yield another mega-distributor to rival the size of SGWS with $16 billion in revenue and 29.1 percent market share. SGWS has, as of the time of this writing, been the most aggressive consolidator in the wine and spirits distribution business in the U.S. An important driver that accelerated the consolidation was Diageo’s Next Generation Growth initiative in 2002. This initiative awarded Diageo’s business to Southern and Glazer’s in many states. When Southern merged with Glazer’s in 2016, a simplified route to market emerged for suppliers searching for an almost complete national footprint. SGWS comprises 44 states and represents over 85 percent market accessibility as a percentage of cases sold in the U.S. In addition, SGWS enhanced its salesforce capabilities, which enabled suppliers to reduce their investment in a dedicated supplier sales force outside of the distributor. At present time, in addition to the 44 U.S. states noted above, SGWS operates in the District of Columbia, Canada, and the Caribbean, and services major brands across all categories through its nationally aligned deals with mega-suppliers Pernod Ricard, Beam Suntory, Campari, and Bacardi. As noted above, a fully integrated RNDC, Breakthru, and Young’s would pave the way for another distributor powerhouse to challenge SGWS and create what is essentially a distributor tier duopoly for top brand suppliers, even more so in the event that Empire Merchants (Empire) in New York would be added to an RNDC Breakthru Young’s combination. If this scenario comes to fruition, this new distribution entity would service 37 markets, have $17.9 billion projected revenue from 2017, and hold 32.6 percent market share. This new powerhouse would prove a formidable competitor to SGWS. In an effort to drive growth, WWW.ARTISANSPIRITMAG.COM
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